Michael Cannon's Cannon
By David Henderson
Cato Institute’s health economist Michael Cannon is the lead economist in a legal case that takes on the IRS. The Affordable Care Act (ACA), aka Obamacare, grants tax credits to low-income people who buy health insurance in state-run exchanges. There is no provision in the the ACA for tax credits to people who buy insurance in federally-run exchanges. The IRS, though, ignored this aspect of the law and chose to grant tax credits even to people in the many states that do not have state-run exchanges.
I talked to Cannon about the case a year ago and he explained it to me. This isn’t some high-level Constitutional debate about “action vs. inaction,” as was the case of NFIB v. Sebelius two years ago. It’s much simpler: can the IRS ignore the law?
Cannon has been having some fun lately criticizing those on the other side. In particular, he took on 48 economists who signed an amicus brief on the other side. In the brief they make the argument, which makes sense, that all three legs of the “stool” are needed for Obamacare to work. That is, Obamacare needs guaranteed issue and bans on pricing for pre-existing conditions, subsidies for low-income people to be able to afford health insurance, and a mandate that people buy health insurance. Take away that middle leg, subsidies to low-income people, they argue, and the stool collapses. The result will be a lot of low-income people, in states that don’t have state exchanges, simply going without health insurance and paying the penalty, or, in Justice John Roberts’s words, the “tax.”
As I said, their economic argument is fine. But that’s not what the suit is about. It’s not about what works. It’s about what the law says. The law contains no provision for subsidies for people who buy health insurance through federal exchanges.
But, argue the 48 economists, this can’t make sense because Congress was aware of this and surely Congress wouldn’t pass a law that doesn’t make sense. In their words, “After all, a mandate to purchase insurance would be a cruel hoax if people were required to buy insurance that they cannot afford.”
In short, their argument about Congressional intent seems to be that Congress would never pass a law that is a “cruel hoax.” Really? Congress does that a lot. When Obama promised that if you like your health plan, you can keep your health plan, and when he promised that if you like your doctor, you can keep your doctor, that was a hoax, as is now widely admitted. I think it was cruel. Now that was admittedly Obama, not Congress, but surely it’s not a stretch to reason from a former Congressman, Obama, committing a cruel hoax as President to a Congress committing a cruel hoax.
Also, as Cannon writes, “It’s a pretty silly argument for anyone to make, but it’s even sillier when made by economists. Well-intentioned but harmful policies are what economists study for a living.”
By these economists’ own definition of bad policy, however, Congress enacted even worse policy (community-rating price controls with zero protections against adverse selection) in both the CLASS Act and the markets for child-only health insurance, and enacted similarly bad policy (community rating with weak protections against adverse selection) in the non-Exchange individual market and in U.S. territories. Moreover, the potential adverse-selection effects amici describe are not out of character for a Congress that was trying to put “a gun to the head” of uncooperative states, which is what the Supreme Court found this Congress was trying to do. So their assertion that Congress would not, could not do such a thing does not fit with the available evidence.
Moreover, it turns out that you can actually check the votes on various provisions of the bill and see Congressmen and Congresswomen actually voting not to provide subsidies for those people who bought health insurance through the federal exchanges. Cannon writes:
Separate amicus briefs by the AARP and the seven congressional Democratic leaders most responsible for the PPACA, as well as a recent blog post by [Yale law professor Abbe] Gluck all acknowledge that allowing federal Exchanges to operate without subsidies was a live issue during the debate that produced the PPACA. (Fun facts: two of those seven congressional Democrats sponsored the idea. And all seven ultimately voted for it in the PPACA, though they now disavow all knowledge. They were for it, before they were against it. Another group of key congressional Democrats complained back in 2010 that the PPACA’s Exchange subsidies, like the State Children’s Health Insurance Program, were conditional and that states could block them. They then voted for the PPACA, yet now claim they never intended subsidies to be conditional. They were against it, before they were for it, before they were against it.)
Would the argument of these 48 economists be that they weren’t conscious when they were voting? Shouldn’t we assume that when people vote for something or against something, they meant to vote for something or against something?
The question does arise, though, as to why various people in Congress would vote not to give subsidies to people who buy through the federal exchanges. And there’s an obvious answer: Congress wanted to give the state governments an incentive to set up state exchanges. Cannon writes:
Congress could have deemed federally established Exchanges to be “established by the State” in which they operate, if that had been Congress’ intent. Indeed, that’s what Congress did with respect to Exchanges established by U.S. territories. But Congress did not do so for federal Exchanges. Thus we are firm ground describing Friedman’s ruling as absurd. Congress intentionally offered subsidies only in states that established Exchanges for the same reason it makes numerous categories of federal spending and tax benefits conditional on state action: to induce states to carry out federal priorities.
That incentive hasn’t worked out as well as expected. But that hardly justifies the IRS acting as if it’s Congress.
Note: I have provided fewer links than usual because many of the links would take you to “Darwin’s Fool” rather than to the specific item cited.